Think Cashflow: Making Money From Invention Ideas
Coming up with an idea to develop a product is one thing. Following through with it, commercializing it, and turning a profit is like playing the back 9 with a back injury.
But you're passionate - much like that golfer - and you're going to make it.
The world is full of great minds and inventors who possess the flair and talent to ideate unique new ways our world can become more efficient, better or easier.
Unfortunately, we never catch wind of most of the invention ideas out there; only a slight percentage of inventors end up on the financial upside of the success recorded by their inventions.
Truth be told, the majority of inventors lack the knowledge and resources required to take an idea through the invention process.
And it's understandable - the process takes investment (time and money) and work.
If an inventor isn't 100% sure they want to follow through with their idea, it usually fizzles out pretty quickly.
The process itself can also feel pretty intimidating. There are questions out there that aren't so easily answered:
And tons more just like these. Luckily, we've answered most of those. Today, we're going to focus on making money from your invention idea.
How to Bring Your Product To Market Successfully
Selling invention ideas pushes society and technology to further satisfying the appetite of a tech-savvy, fast-paced, always-wanting-more generation.
For this very reason, patent and licensing (and even counterfeiting) laws are a necessity; it's the government's way of controlling supply and demand.
So how do rise above and supply the demand that's out there by selling your inventions?
The largest companies in the world are clamoring for "the next best thing" because innovation is the key to beating competition, and innovation at a high pace ensures executives sleep better at night.
Therein lies the opportunity for inventors.
Because you have the advantage of patents on your side to ensure your ideas are properly credited, you can be compensated for your efforts.
Indeed, inventing is becoming a great way to make money.
To become successful with an invention, there are several steps one has to take before successfully selling their ideas to companies.
In the most brief possible way to present them, the steps from invention idea to profitability are:
It's not that easy. But it is doable even though each of these steps has its intricacies.
Selling Ideas & Making Money
The following are ways you can put your product on the market, and make cash from your ideas.
The DIY (do it yourself) approach to selling your invention
Make money licensing your invention
Invention licenses are legal agreements between and inventor and another party, usually a business, wherein the inventor licenses the rights to his product to the company to sell.
Usually the inventor is compensated through royalty payments.
In licensing, the inventor owns the invention idea but leases out the right to others to make, sell, use or sell the invention in question.
The financial benefit for the inventor comes as royalty for each unit that is sold, or an agreed upon flat fee.
You can award the license to market, manufacture, advertise, or distribute the products to a single company, or choose to provide a non-exclusive license to multiple parties.
The royalty fees earned from a permit will vary from less than 1% of net sales to around 8%, with the majority of royalty rates being between 3% - 6% of all net sales.
The fees are rarely large as the company you have sold the license to will have made a considerable investment to turn the invention idea into a marketable product.
In the end, however, licensing your invention is one of the best in-roads to financial gains for inventors.
Private label marketing an invention to make money
This is a strategy used when inventors would like to build quick sales bases to reach wider clients base of prominent merchants.
It is the kind of arrangement where another company, most often a big and well-established business, sells your inventions under their business name.
You probably witness white label products daily and don't know it.
Much of what consumers buy that is wrapped in a brand name isn't actually produced (and wasn't ideated) by that brand.
Much smaller manufacturers, and even solo inventors like yourself, strike private label (also called white label) deals with companies.
The advantage to big companies is they beef up their product line. For inventors the advantage is fiscal, obviously.
The downside to the private label marketing approach is that you may become over-dependent on a single customer. If said client were to drop your agreement, it could spell the end of your business.
So there is a risk:reward that needs to be weighed out.
You need to consider all the possible risks when getting into a private label agreement.
Idea: You can minimize your exposure by asking the firm to make a sizable investment, allowing them to be a partner in the business venture.
Inventors and joint ventures
In joint ventures, you get to partner with other organizations, businesses and individuals who are willing to work hand in hand with you in creating a good product that you can bring into the consumer market.
Many people and companies are willing to work with inventors, provided that they see something special in the products, be it in the form of market size or market opportunity.
You will need to convince the interested parties that your product will make money once released into the market.
They will need to see clearly outlined strategies and approaches, your distribution channels as well as the relationships you have with all the relevant people in that market segment.
3 steps to a successful joint venture
Selling ideas on commission
If you have an excellent idea but do not possess the experience or resources you need to create and distribute the finished product, you may consider approaching a few companies that will be willing to manufacture and distribute the product as their own. In turn, you will receive royalty or a commission for each unit that is sold.
Selling a product on commission means that you as the inventor will handle most of the tasks. You must therefore carefully review the agreements that you make with the manufacturer. Find out how the commissions will be paid, and the percentages you will earn.
Also, make sure your idea is patented first. As an inventor, you need to secure all necessary licenses for your creations. A manufacturer may decide to steal the idea and completely shut you out of the entire process. Inventors, sad to say, are the low man on the totem pole, albeit the one with the best ideas.
Starting your company
Inventors can always make the decision to do away with private labels and joint ventures and go out on their own.
When starting a company, inventors retain control of the product idea, manufacturing process, marketing, sales and distribution.
You are therefore responsible for moving the unit from the idea process and into becoming a powerhouse in the chosen industry.
Beginning your own firm means that you must be ready to handle a lot of work, and make all the important day to day decisions.
It is also the only strategy that can guarantee maximum returns on the invention.
Your goal must be to build a robust and sustainable firm that is based on the product inventions. Not completely advisable without a solid business background and possibly some friends in all the right places.